Why don't Real Estate Agents charge by the hour?

As a potential FTB, I'm beginning see a strong correlation between Real Estate Agents and other highly qualified professionals, such as CPA's and Attorneys. Both are paid by the hour and...
-- Both are each experienced & maintain professional certifications and practices, including ethics oaths.
-- Both belong to firms with overhead & that require them to share part of their hourly rate.
-- Both have access to exclusive industry related information & networks (no fee).
-- Both offer solid, lifelong "relationships", including customer service, "reach-ability", and hand holding.
-- Both save clients tens of thousands of dollars.

So, REA's, how is a 3% buyers agent commission justified, based on sales price alone and not the actual services rendered? On an $800K purchase with an agency fee of 3%, the $24,000 far exceeds the average lifetime "worst case scenario" for the CPA or Attorney costs ( i.e. IRS Audit or Civil Litigation). What exactly am I paying for?

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Answers

I don't think RE agents are getting rich doing nothing. Far from it. Bottom line, however, is commissions are excessive - namely as a result of FAR TOO MANY agents out there. Basically, the pie is far too large and it's being sliced far too many ways.

I don't need my choice of 450,000+ agents in California to work with. That's ridiculous. How much of an average agent's time is spent trying to secure clients, promoting themselves, writing checks to various associations or chasing unlikely-to-close clientele -- none of which provides any value to the consumer -- rather than actually brokering deals where their expertise serves a useful function?

The system is broke, largely because the top hierarchy of the system (mega brokers, MLS's, NAR, CAR, etc) have a revenue model based on VOLUME of agents via desk fees, association dues, subscriptions, etc. They made sure it was painfully easy to become licensed, as each licensee likely equates to more revenue and, perhaps, churn more properties via an oversupplied labor force. As a result the actual talent in the industry is forced to waste far too much time selling themselves, which provides no consumer value, instead of doing their actual job.

Commissions remain absurdly high despite the efficiencies seen from technology in the last decade because the industry has created an environment where too few of an agent's hours are actually revenue-generating. In the end, the consumer (and most RE agents) pays for this inefficiency. Yet ~95% of RE agents seem hell-bent on defending the archaic MLS / 6% model. I don't get it.

The payout number seems high but it is not. The reason agents can get a lot of commission in any sales field(not just re) is because there is so much risk on the side of the agent or sales representative. The agent has to spend countless hours(sales can even take years) on behalf of the seller and or the buyer and many times the deal never closes. It costs the buyer and seller nothing. But it can cost the agent a lot of time and money. The payout is not as good as people think. Many deals are cobroked and you split the 5 or percent in two ways. 3 to buy side and 3 to the sell side. And the agent does not keep the 3 percent. Usually half and sometimes less than half goes to the agency itself. Many times there are 2 or 3 agents working on a listing and and an assistant has to be paid as well. When break down all the expenses and the fact that you spent 100 hours on a deal and spent 5k to market the property with no guarantee of ever being paid, you will see the agents earn every penny.

After reading all the posts below, the answer is clear. Most full time, professional agents would be more than happy to move to a pay structure that is similar to an attorney or a CPA. It would be wonderful to know that, once retained, we would get paid for every 15 minute increment we work. It would take away the need to work with a large number of Buyers and/or Sellers because statistics show that currently only 1 out of every 12 actually results in a closed sale. It would eliminate the Sellers currently in market who are really not motivated to sell their homes. It would eliminate the Buyers who are window shopping. It would actually increase commitment on all sides of the transaction. It would raise the bar for agents and may even make a positive impact on the perception of our business because consumers would finally get to see exactly what we do all day!

The thing is, in almost every sales field, brokers are paid on a commission basis. Art dealers, insurance agents, lenders, even contractors mark up their services on a percentage basis rather than on a flat-fee basis.

It is said that a cynic knows the price of everything and the value of nothing. I don't know if that's true, but I do know that when it comes to buying or selling real estate is to find the agent who provides the best value, in which case the price won't matter a bit.

There is only one simple answer to this: Realtors are in sales, thus, they get paid a commission.

I am a Realtor myself, and though I shouldn't be saying this, this business is a numbers game, that's it. Our 3% is completely justified as this is a tremendously difficult business. The problem is that the home buyers or sellers don't see this. Once you get a listing, or get into escrow, that is the easy part. The hard part is the countless hours spent on finding new leads and converting them into clients. This is why we make a 3% commission. 90% of our work is not helping the client, it's finding them.

Below is a list of real estate pre-license schools that would be of great benefit to you. This is the ultimate source that can help with your curiousity. It offers 45 hours of unbiased facts regarding what is expected from a California licensed real estate professional!

Education is never a waste of time and although the course costs break down to about $1.77 an hour, I'm sure if you call them, they'll be glad to justify the cost.

If you can complete the course, you will not only have all your questions answered, you too will realize that real estate is the career dreams are made of. With all the rules, regulations, expense, sweat and hard work, we all love our careers and we can't imagine doing anything else!

@ my fellow real estate professionals

Hit the "LIKE" button if you love having a career in real estate too! Let me hear your woo hoo's here in Rhode island!

Here you go- the 3% does not all go to the agent unless they own the company and are not associated with a National Box . The Box brand brokerages charge the agent everthing under the sun to do their business and take a percentage of the gross. The Box Co. also charge the agent a National Fee on every sale. In addition , self employment tax, all expenses from cell phones, internet, insurance, licenses, board fees, MLS fees, advertising, gasoline, etc.- not to mention personal expenses that all people have. In addition, can you phone your CPA @ 6 AM or 11 Pm on a Saturday, Sunday or, major holiday? The commission averages out as some properties they make zero on as expenses eat them alive. Lastly, your agent was working in the interest of you based upon experience as agency law dictates. I would like to know your opinion as to what hourly rate would be equitable- you may have been charged more!.

Hawkeye,Thank you for a great question. In viewing the post I think that David Atherton answered the best.

"Finally, you, John Q. Public, will not pay us by the hour for services rendered. My broker has tried to do this for years. He has a standard fee schedule and offers to let people work by that. He has not had a single person take him up on the offer. Everyone wants the commission basis as a way to pay."

The bottom line is that the consumer directs us as to how we are paid and how much.

If a percentage is to high they will not pay it. If they want flat rate they can get it. But it seems that most people want there real estate agent day and night and would just rather pay a percentage.

I'll take $100 per hour. I'd love to bill for my time. It's the old "Walk a mile in my shoes..." answer.

No other industry allows for non-payment after six months of work dependent on the decisions and actions of the client. 100% commission paid upon successful closing is a concept few understand. No sale, no pay.

Bottom line, our clients are using our experience, resources, networks, time and marketing. We SHOULD be paid hourly. Somewhere in the beginning of real estate time some suit decided agents would be paid a percentage of the sale only upon successful completion of the sale (which many times lies in clients' decisions and actions).

How is the commission justified? By a successful closing! Who takes the risk? The seller/buyer or the agent? I wonder how many people who criticize the way we are paid would have the nerve to do commissioned sales.

To answer your question, I would love to charge by the hour. That way I could count on making an income when I assist buyers and sellers with their transactions. At this time, I estimate that my per hour rate averages somewhere around $3.00 hour, which means that I avg. $30 a day when I work my 10 hour days. Of course if our industry implemented a per hour charge, I would raise it to a range of $85 to $110 per hour.
I'm ready to implement this anytime a client is ready...
Regards,
Suzanne Looker

Saying that buyers agents are over-priced messengers seems like a statement that is just meant to inflame.

Actually, only you, the agent and the broker should be having this conversation. They are the only ones who can explain what happened and help you with your frustration. We can only speculate. I would suggest that you give them a call and talk about how you feel. You obviously are feeling some anger and you really should talk to them about it.

I'm just a little curious, what do you do for a living? You don't have to answer.

How many CPA's or lawyers do you know that put 80 hrs of work into something and never make a dime. Sellers pull listings and Buyers finacing falls through all the time, leaving the agent with nothing but a dead deal. Believe me 800k purchases are not that common. For example I just worked on the buyer side of a 80,000 vacant land purchase for a buyer out of state. I have most likely logged well over 60 hours of time on this deal . At 3% commission I am not even pulling in 2,500 when all is said and done. If I was being paid by the hour at CPA or lawyers rates that would have yielded me around 10,800. Much better deal. We take the good with the bad and work equally hard for both. If you really have to asked " what exactly am I paying for?" you should probably find a different agent.

I never said Agents were Greedy, not here or anywhere in this Forum at any time.

I was talking about contributing to the perceptionsome of the the Public has (and said right or wrong) that Agents are greedy and having this discussion with $100/hr comments IMO could possibly add to that.

I've paid more than 6% Commission a number of times and have never said it wasn't worth. The
Commissions are negotiable by Law and well all know some agents are already doing things for less than 5-6%. There are flat fee services and other options already in place. I've no where in this thread or forum suggested any one was better than the other and have in fact referred a number of people who came here to full-service agents because it is my opinion they are excellent agents based on their comments ect..
I always tell people to interview interview interview......

This....."You've got a chip on your shoulder the size of Mt Rushmore and until you become licensed and learn about the industry away from an arm's length view, your opinions hold little water." is just a silly and immature thing to say. It is totally untrue and you based it on things I have never said.

This...
"By the way, may I ask your profession?" May I ask what Professions are on your approved list of Professions? If I wash dishes is my opinion worthless? Do you refuse to sell homes to people based on their Profession? My opinion is more valid if I'm a member of what Profession.

ONCE AGAIN.....My point was that in this market Public perception is a very important factor. Why add ammo to those who already are feeling (again, right or wrong) that Agents are Greedy.

I'm questioning the time and place for this discussion...........not attacking Agents, the industry, or saying anybody is worth whatever.......

It's an open Forum and you can say whatever you want and talk all you want about charging $100/hr to show a property. I just questioning the wisdom of doing it here.

But please do so if you wish!

BTW...I'm retired from two Professions...I was an Episcopal Priest (22 years) and then was a Psychologist who worked with people who have Autism (15 years). I have been buying and selling for over 40 years. I have always used a Full Service Agents. If the point you were making to me with the silly Chip on my shoulder statement was that only Agents know about Real Estate then I hope you've shared that opinion with any investors you've worked with as I'm sure they would love to discuss it with you.

"You state that it's "foolish" to believe that the public will not soon decide to use other ways to broker real property without licensed agents."

I said "Same with Services and the value is determined by the people who pay. It's foolish to think people won't find other ways to complete the process of buying/selling if they as a group decide things have gotten re dik u lous!

Which could mean Flat Fee service..FSBO..Aliens...Magic Rocks who knows, industries and people adapt all the time. In this economy/market do not feel so confident in the "WE are entrenched" philosophy would be my recommendation.

I'm not here in this thread to debate (The public needs us) I'm here to express my opinion that YOU NEED THE PUBLIC............

The point of my comment was...
In this market this is a very Re dik u lous discussion to have in a public Forum IMHO as Public perception of the RE Industry far outweighs what Agents think their value is at this time.
and
It's not about you should or shouldn't, it's right or wrong, you are are you aren't, it is about the Time and Place for this discussion.

$100/hr? The public will surely consider that and I bet they come to the conclusion.....Greedy RE Agents.

If there is a buyer in Southern California willing to pay me by the hour to advise them, help them find a home, and help protect their interests through the whole buying process until close of escrow, PLEASE CALL ME!

I've been a Realtor for 29 years. I am consistently studying the current and ever changing real estate market. I study real estate law, try to keep up with lending, taxes, and marketing, to name a few. I pay my office fees, local dues, state dues, Realtor dues, MLS dues, fees to lease my lock box key. I buy my signs, lock boxes, ink, paper, and gas. My whole life is focused around helping buyers and seller accomplish their goals.

This discussion has motivated me to keep track of my time and expenses for a month on each transaction. I would swear that sometimes I make about .15 cents an hour on a transaction.

To top that off Realtors don't have an employer paying into a disability, social security, unemployment, health insurance, or a 401K account for them. We don't get paid sick leave or a paid vacation. I think most employees would be shocked to find out just how much they really cost the company they work for.

If buyers had to pay us $80 to $100 per hour I am pretty sure they would have a lot more respect for our time.

Having said all of that, I do know that not all Realtors or real estate agents are created equal. Nor or all mechanics, customer service reps, dentists, or any other employees in any trade. My advise is to find a Realtor that you like and whose experience and knowledge you respect.

The seller pays the listing agent the commission. The listing agents then chooses to offer some of what they are getting to an agent that brings the buyer. The commission offered to the buying agent to bring a ready, willing, and able buyer has nothing to do with the buyer himself.

Thanks for your question, which has certainly raised a lot of interesting comments. I, too, will side with those wanting to be paid by the hour as this would mean I'd be compensated whether a home sold or the buyer purchased. No one would ever agree to pay for my services on this basis since Realtors are as much revered as we are devalued, and paying by the hour would require a consumer's acknowledgment of the skill of a Realtor.

I'd like to address, however, this myth I've read and is seemingly perpetuated by many buyers or sellers that Realtors are making unwarranted and extraordinary sums of money on transactions. While it certainly does seem high--if I could keep every penny I made from that commission--one has to understand that the commission assumes the "risk" the Realtor takes in doing a lot of work for clients or potential clients for naught. Since we are both in California, might I break down the cost of being a Realtor so that you might have better understanding of the fees? Oh, please keep in mind that no one is making 3 percent commission on a deal anymore.

To be a Realtor in California, whether you sell a home or not, there are fixed expenses associated with the practice. These fixed expenses come in the form of "desk charges" to be with a broker, board memberships, MLS membership, database memberships, marketing company referral fees, office supplies, car insurance (we need more of it than regular consumers), continuing education, telephone costs, website hosting, and Supra key rentals. On the average, if you are an active Realtor working this business as a profession and NOT as a hobby, this fixed cost is about $1200-1500 per month.

Once a Realtor has a transaction, there are then costs associated with the servicing the client, such as travel and gas, advertising, marketing costs, web costs, database access charges, report fees, printing, emails, and time. As one Realtor noted, on the average, a Realtor must work with between 10-12 clients in order to close one deal--so the cost, even if it is only $300 per client in reports and travel x 12 clients, means that the average Realtor expends $3600 to make the one commission. If the commission is the average 2.5 percent on a $800K home (which is a higher than average price of the home selling today--the median is $500K here in Santa Clara), the commission is $20k. Subtract from this the fixed costs of being a Realtor with the variable costs of handling the transaction, and the net total to the agent is -$1600 (that's negative $1600) before the broker's cut, which may be as little as 10% for a negative (-)$3600. On the average, Realtors are closing about one transaction per quarter, so all things being as mentioned above, and the agent is making $80K in gross commission, losing $18K in fixed costs, $14400 in variable costs, and $8K in broker's fees for a grand total of $39,600 for one year's work performed 7 days per week during the day and the evening. I'll bet you make more than that for a 40 hour work week.

Of course, there are REO agents selling as many as one or two transactions per month, so they're making a lot more, right? Wrong. My friend who is an REO agent pays all the same fixed fees that I do, except that for his 2 percent commission on the sale of the REO property, he will lose 40 percent to the Asset Management company for the right to sell the home. He's still doing all the same things a Realtor must do to advertise a property for sale--$500 in flyers, $1500 in newspaper ads, $350 in web marketing and adverttising, $350 in emails to Realtors for a total cost of $2700 in transaction related variable expenses. Here's how he makes out on an $800K sale: Gross commission on an $800K home at 2 percent is $16000, less 40% to Asset Manager -$6400, less variable fees of $2700 and broker commission of 20 percent or $3200 and my friend nets a whopping $3700 on the sale BEFORE the application of any of the fixed costs. Again, an extremely small return on the investment of 50-60 hours of work per week.

Truth is, Hawkeye, Realtors are their own business operators and, unlike you, a salaried employee, there is always a cost associated with every dollar we make, so whether a client buys or sells there is a cost and that cost is not guaranteed to be covered by a sale. The CPA, the doctor, the attorney, on the other hand, gets paid whenever he/she works with a client--and, therein, is the reason for the different fees structures.

Thank you for your question and for this opportunity, I hope to debunk some of the misinformation regarding the sizeable and unearned commissions paid to Realtors today.

It is very true that agents spend a huge amount of time and money marketing themselves, and this does not benefit the consumer. It is common for agents to pay as much of a 40% referral fee to "corporate relocation companies" that send qualified clients tom them because those clients are considered sure things. I would love to have a different system in place, mainly because many in the general public like yourself feel so strongly that agents are overpaid. I just want to be compensated fairly for my time, knowledge, experience, guidance, advice and hard work.

All too often, I hear the blame for high commissions put on MLS's, the Association of Realtors, or the real estate establishment. Real estate is one of the most open businesses out there. If you wanted to, you could get a real estate broker's license in a few months, and begin advertising yourself as available for hire by the hour. Many have tried such different approaches, like Redfin you mentioned earlier, or Zip Realty, Help-U-Sell, etc. but the overwhelming number of the general public continues to use more traditional agents. This is their choice, and it's made because the job of a real estate agent is unique. It's educating and advising on the market conditions and area conditions, hand-holding through the process, sometime psychologist, part financial advisor, negotiator, among other things all wrapped up into one. Each transaction is so different and there is so much that rides on the advice you get, and the trust you have in your agent. It is much more of a personal service than a CPA or attorney would give, and the final outcome is almost always unknown. I doubt your CPA or attorney has run an offer over to another agent on a Sunday night to make sure it's received in time, or vacuumed your vacant house before holding it open. It is that unknown and all inclusive service factor, as well as the public's desire to pay only when their transaction is completed that is mainly responsible for the higher commissions, not some collusion between 1 million agents to keep commissions higher.

When someone walks into my office and says they want to buy an $800,000 house, I have no idea at that moment whether they'll be easy to work with or not, whether they'll buy the 5th house we see, or the 50th, whether they'll get cold feet, change their mind and decide to move to another area, decide to buy their friend's house which isn't on the market, or buy a house through Aunt Martha who just got her license. I take it on faith that they are going to follow through, and I try to do the best of my ability to help them achieve their goals. If it gets to the point, where it's obviious they're just wasting my time, I will surely cut the rope - but by that point, the damage is done. The time and money has been wasted, and there is no going back.

JR: Again, it looks like the majority of real estate agent haters are from California.
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The other professional classes screen clients and employ efficiencies that ensure a focused, highly productive effort where the cost to benefit ratio ensures profitability at a reasonable billable rate. All the classes of professionals I mentioned routinely turn away prospects, but I'm not sure to what extent REA's do so (seems more like more of a shotgun approach).

Metaphorically, are you mowing the lawn with tweezers and then trying to bill for the excessive time that it takes? Efficiency is the hallmark of American enterprise. How many of you have routinely turned away (or ultimately fired) clients because they are wasting your time and diluting your earning power?

JR: If only when we asked, all the real buyers would identify themselves! If I qualify too hard, they don't want to be pressured, they don't want to give me answers. . . . and how many of us have fired clients? I'm sure many of us have. Unfortunately it's after they've already wasted our time. I was just talking with my partner about all the time I could have spent hanging around the beach last summer, when I did no business for 2 solid months, instead of driving around lookers and going on listing presentations where I turned down listings from unrealistic sellers.

You have really stirred up the answers!! Most of the public do not understand that of the large sum of money the commission commands, whether it's a buyer or seller, it is split in many ways and as an avg an agent may make 1.5% of the sale price after all the splits. Of this 1.5% we pay for ALL our own costs. You have to have a large team under you to make a lot of money in this field. I prefer to be hands on with my clients, earn a good amount of money for the over abundance of hours and enjoy the balance of my life. I would suggest you find a honest, hard working, knowlegeable and assertive agent that you feel very comfortable with after meeting.
Suzanne Looker

What you're paying for is the flexibility to pay a fee only when your transaction has been sucessfully concluded. This is actually quite similar to an attorney that works on a contingency basis in a civil case (except they usually take 33-40% of the award). The reason the system has remained that way for the most part is that most people prefer not to pay up front or to pay anything if their goals are not met. The real estate community as a whole has accepted that premise, and is one of the few industries where you can get someone to work for you on a contingency basis, in many cases without even a simple contract.

If agents were paid by the hour, how exactly would that work?

If I represented you as a seller, would you dictate how many open houses I did, so as to limit your costs? Would you be surprised to be charged daily for calls I made on your behalf to other agents to ask about your house? Would you want to pay me directly for showing your property to potential buyers who decide not to make an offer? If after 3 months of no offers and weekly bills showing up for all the marketing costs, time, signage, etc, do you think you'd feel good about the situation? I think you'd find that all these costs could add up in a hurry, and that none of them may produce the desired result - the sale of your home at a price you're comfortable with.

If I represented you as a buyer, should I bill you for houses I toured for you on my own, even if none of them were right for you? If I take you to five houses to view, and none of them are to your liking, are you prepared to write a check to me for that outing?

I agree with you that the compensation for higher priced homes seems high. I certainly thought that before I got into the business. But, you also have to realize that for every $800,000 sale, there are buyers you work with for months who end up not purchasing at all, sellers you spend thousands of dollars and countless hours marketing for who, in the end, take their properties off the market. There are many companines & individuals that have tried to take different approaches to compensation, such as refunding a portion of the commission, or working on a flat fee basis. For the most part, they have failed, continue to lose money, or make a bare bones profit because the cost of being in the business and providing the types of services that the public expects is expensive and time consuming. It's also feast or famine (mostly famine recently) for many in the business, so that $800,000 sale may have taken months to put together, and is likely few and far between.

If you did offer an agent the opportunity to work hourly, I think you'll find many that jump at the chance!!

I pay my CPA $160 per hour and my family attorney $200 per hour. When needed to satisfy my (broader) service requirements, either of them will engage others in their respective Firms, and those folks charge anywhere from $25 per hour (clerks) to $400 per hour (experts), inclusive of things like expert negotiators, notaries, etc.

In every interaction I have with the above referenced pro's, regardless of who does what, I get a detailed monthly invoices describing exactly the work done and at what rate; they track and report it down to the cell phone call and/or photo copy (including what was copied).

If the CPA's and Lawyers (and Doctors) can do this, why not Real Estate Agents? My CPA could never convince me to pay him a flat rate based on a percentage of my total gross income. My attorney could never convince me to pay him a flat rate based on my "potential" liability costs. If my Doctor tried to charge me a percentage of my total earning power, resulting from the increased longevity that might be realized from his treatment, I'd probably burst my spleen from laughing (then I'd have to call my lawyer..LOL).

I think a more appropriate answer may be as a "buyer" you are not in fact paying the commission. The commission is being paid by the seller of the property. I am a Mortgage Broker but do see the need for experience full service agents. Would you go for open heart surgery to a med student?

I have seen too many purchases lost to "lack of experience".

I am happy to say I am a professional and would be happy to refer you to an agent that could help. It's my feeling that what you get when you hire an agent is a professional that "negotiates" your purchase.

I think that may be what you are looking for. There is value in negotiation.

So how does one find a realtor who is willing to work on a per hour basis? I would be more than willing to pay $100/hour for an agent. I would like the opportunity to "help" where needed to keep my costs down. I do understand why the commission of 5-6% is justified, because most of the work goes unpaid. But this creates such a socialist situation: the 2% of the homes that are sold/people that are serious about buying pay for the 98% of realtor's time wasted.

Sign me up. I am in San Luis Obispo, CA and I will pay $100 to $125 per hour to sell my home! Otherwise I am thinking of getting my license to offer the service to other people. Now I just have to find other realtors willing to do the same, and maybe we can change the system.

I think the commission system directly contributes to the housing bubble in the Bay Area since both the sellers' AND the buyers' commissions are based on the sale price. If a house is being offered for $650K and each buyer's agent recommends "bid 20% over because... market, other bidders, etc." and each potential buyer does just that, the consequence is that the house ends up being sold for $850K which lines the pocket of both the buyer's agent and seller's agent. There is 0, less than 0 incentive for a buyers' agent to get the lowest possible sale price.

And all an agent has to do (buyer/seller) if the median home price is $800K is sell 4 or 5 of these houses each year for a pretty darn good income.

Moreover, in my experience, while sellers' agents do seem to work hard staging houses, buyers' agents do very little until after the sale is made when there is paperwork to complete.

So I think an hourly rate would not only stabilize the market but make buyers' agents more responsive to client needs.

quick and basic question.... where does this 3% figure come from? Last time I checked, commissions are 100% negotiable... and conversations like this that imply a "standard" or "set" commission rate are actually illegal for a Realtor to have... not because it's a big secret, but because it implies a fixed cost...

I'd be THRILLED to work this job hourly. I've offered flat rates to many of my sellers and not a single one has taken me up on it.... they're not usually willing to put their money where their mouth is... but we do. No selly, no eaty... something my dad taught me when I was very young... if you're in this business and you don't sell the house... you don't eat. That's an insanely scary thought when you have a family to feed and bills to pay.

There are a lot of transactions where realtors get overpaid, and a lot of work good agents will do and never get paid. Personally I have been for pay by the hour since I got into the business. It would eliminate a lot of time and effort without pay on my part. Also, the consumer would generally look to the better firms in the business to hire their professionals. No more unmotivated clients. Clients should receive better service with the costs lowered. Just like legal and accountancy firms.

I have been thinking about creating a real estate model for paying by the hour and possibly by the mile.
With all the apps available, it would be easy to keep up with the mileage. There would be available options for the buyer whether the agent treated them as a customer or a client. This way the buyer isn't forced to continue to work with the agent. Buyers wouldn't even need to be ready to buy. Some people just enjoy looking. Certainly a real estate attorney would need to establish legality for
all forms and documents. I wasn't thinking $100 an hour more like $20 and .30 a mile.
I'm required to pay all the dues and take 30 hours of classes every 2 years. I think a model
like this would work for retires and those desiring fewer hours. I would appreciate any ideas others would have on the subject. I also thank the originator for starting this discussion.

Hawkeye: Checking in with you from the financing side (watching from the inside out).
Should a RE agent charge you by the hour, you would be paying way more than the 3% commissiona offered by the seller.

A great agent makes it appear to you, the buyer, that all they doing is popping you in the car, showing you a few homes, writing the offer, getting it accepted, closing the transaction and getting paid big bucks.

That is a great agent: making it look easy. When really, behind the scenes, they are working hard for you. And even harder to not let you see how difficult it really is for them.

Before they ever get you in the car, they are researching your crieteria. Filetering out the properties that may have negative implications (freeway noise whatever). Experience in thier neighborhoods and towns make it so they know which schools work for you or work for future home selling.

There is coordinating with title company, financing company (these days the short sale or reo departments).

There is so much more going into your transaction than what you get to see. Because someone professional is there doing the footwork and has got your back.

Unfortunately, there are companies out there that have marketed themselves as your paying very little to the agent and do all the work yourself, but that puts a TON of burden on the rest of the players in the transaction. Another professional has to pick up the slack to help out the buyer or seller who has chosen to "do the work themselves".

If you are chosing to sell this way...most professionals will try to avoid your listing.
If you are choosing to buy this way, you are setting yourself up to fall into pitfalls that you are not even aware could be coming your way.

As I say, you would not choose the cheapest cardiac or brain surgeon, you would want the one who was most educated, well proven and worth their weight in gold. You should want the same in the professional who is going to be guiding you through probably the largest investment you will ever be making in you life.

Maybe it is time that we changed the way Realtors get paid...here's an idea! What if we got paid by the hour for our consulting services? The ones we provide now for free...include benefits and an occasional day off and you can sign me up!

Actually, attorneys give their clients the choice of an hourly fee plus retainer or a contingent fee which can be upwards of 50% of the amount collected, depending on the type of case. In light of this, the 3% buyers agent commission seems like a steal.

Part of what you are paying for is not the time expended but the knowledge, training, experience and education obtained by the licensee. This reminds me of the time when my husband's secretary (he's a lawyer) wanted to be paid similarly to him because "she did all the work" and he was paid significantly more money than her monthly salary. Of course, she didn't attend or pay for 4 years of undergraduate and 3 years of law school at Michigan, nor did she take the risk of disbarment, lawsuits, monthly overhead, insurance, payroll, health insurance or employee taxes.

3% of the sales price seems like a bargain when looking at the total picture.

Here's the deal for real estate agents: when clients are easy and the deal is smooth, we are paid a very high rate. Many times, we spend countless hours on a client who does not successfully complete a purchase. In those cases, not only do we not make any money for all our time (as in $0), we have spent money on travel and other things. So the bad news is, you are actually in part 'paying for' all that unproductive time we spend.

My solution: find buyers who require less handholding (similar to Redfin buyers), and rebate 50% of my commission back to them, while offering the most complete full service representation available. To learn more, please visit http://www.sidewalkhomes.com

Hey Hawkeye, good question. A real estate agent is a skilled pro. But this is a sales based profession, since only a final sale is the ultimate test of value for the agent. Until a sale happens, no money is generated. So, in the end, to keep focus on the primary goal and not to get sidetracked by nonsense, only when sales happen do the brokers (and agents) get paid.

Would homeowners and buyers prefer to pay an upfront retainer fee? How about $5,000 up front and non-refundable if the transaction doesn't close? Agents spend their time and money up front with no guarantee of pay back. Would buyers And sellers also like to take that risk? My guess is no.

@Beverly
I certainly didn't mean to inflame with the overpriced messenger comment. I'm simply trying to understand what goes on behind the scenes. What tasks are completed during the offer, escrow and close of a transaction? What time commitments are required for these tasks? Who does what tasks, broker or agent on either side.

Throughout this thread I've read that a great deal of effort is exerted to close a deal and that justifies the commission paid but there are no details. Explain the tasks that needs to be done by the agent to complete a deal when an offer is made.

@ Jace: "Based on my purchase of prior homes, the broker is handling most of the vital paperwork, not the agent."

I WISH!

The agent (or their team) handles ALL the paperwork and then hands in a copy to the broker when done so the broker has a file on record. IF the broker provides a Transaction Coordinator, the agent is charged for using that person. And some brokers wonâ€™t even issue the commission check until all the paperwork is handed in.

Rather than explain what I do, Iâ€™ve offered on many occasions to have anyone follow me around for a week. In fact, Iâ€™d welcome the opportunity. Rather than me try to justify what I do to people who clearly DO NOT know, come follow me instead. If you can keep up, that is.

Although this question is a bit old, the fact that it is resurfacing now is a bit ironic. I frequently bump into buyers who let me show them a few homes, then decide they want a piece of my commission. Which I wonâ€™t give them. Invariably, they go find someone who will. And in 100% of the cases, when I follow up, they tell me, WITHOUT EXCEPTION, that the process was not a good one. So much so that NOT ONE will refer the agent they used to get the discount. NOT ONE. I received the following email just today:

â€œThanks for following up. We purchased a property in May through a discount realtor and the experience was not the best one. I guess we got what we paid for :( . Moving forward, I wanted to know if you would be interested in helping us find an investment property in the Bay Area.â€

Iâ€™ve lost count of how many identical emails Iâ€™ve received. And Iâ€™ve had MANY buyers who used a discount broker refer ME to their friends. How strange is that?

And to answer some of the other questions, here are a couple of posts that may be helpful â€¦

@ Joshua
I'm trying to identify the value that a buyers agent brings to the transaction. I'm still not getting any solid detail as to what a buyers agent does, just ambiguous answers. From your answer, point 4.. the buyers agent sounds like an overpriced messenger. Help me understand why a buyers agent is justified in receiving a percentage of a sale, what specific work do they do during the offer process, transaction process that justifies their commission?

Jace - everything in real estate is negotiable. If you want a tiered system with your next buyer's agent, tell them. There's nothing stopping you from going up to a buyer's agent and saying "i know what home i want, and i know what i want to pay - i want you to rebate me a portion of the commission because I've already done a lot of the work for you." Now - whether an agent will agree to that or not is between you and them... but it is something you can ask (although I wouldn't necessarily choose an agent based on how little they're willing to accept to feed their family... those of us who know what we're doing are valuable and don't work for free).

Secondly - What you (or any other buyer) is willing to pay for a house has absolutely nothing to do with how much the buyer's brokerage gets paid by the listing brokerage. If you want to pay 3% less, then offer 3% less. The seller already has a contract in place to pay the listing office X Dollars or X Percent of the sale... and the listing office has already put into writing that they will pay X Dollars or X Percent to an agent that brings a buyer... A buyer is not a principal to either of those agreements.

Thirdly, regarding an agents incentives/profit model... that all depends on the agent... When I'm working for a customer... I'm not working to sell them a house... I'm working to get a referral to everybody they know who's ever in the market to buy or sell a house.. .the only way to do that is to do right by the customer... not just take as much money out of their pocket as I can... that will only get me one deal and a customer who feels screwed... I want you to go out of your way to hand me ten deals because you're so happy that you found a fantastic Realtor who did right by you...

Numero Quattro: Inflated prices also have nothing to do with a buyer's agent... they have to do with what other buyers are offering on houses... if you have 10 buyers who all want the same house, and the seller/listing agent are smart and know how to entice them to offer more money, that's just capitalism/supply & demand... I don't tell you "offer $100K more than this house is worth" ... I tell you "There are 5 other offers on this house... if you like this one better than everything else you've seen on the market, make your best offer and see what happens"... if the home wasn't affordable for you, shame on you for buying it.. .that's not your Realtor's responsibility, it's yours... my job isn't to calculate how often you're going to go to expensive dinners or say "hey wait a second... if you buy these two new cars a year later, and then take out charge-cards at sams club and sears and run up your bills... you won't be able to afford this house..." Your finances are your responsibility... My job is to do what you tell me... if you tell me "i want to buy this house and here's what i'm willing to offer based on the information that you've given me" then my job is to present that offer and do what i can to get that house for you...

To explain in detail what goes into a successful transaction is not that simple. Sometimes everything comes together and ends nicely, other times its a little like herding cats. Looks easy on paper but in real life there is a lot of time and energy spent just keeping everyone calm, motivated, and working together- and that's after all the money and time you've spent to find the buyer and put a deal together.
It's interesting that you feel the broker is doing more than the agent. Maybe that's something you can discuss together that way you can get the answers you are looking for.

I would be very curious as to the break down of services that garnered you $3.00 an hour for that transaction. What was the total sales price, and how many hours were devoted to closing that deal? Was it a typical transaction or were there anomalies that led to the increase in time required to close? If you could, please list the tasks involved in closing typical transactions and the time required for each.

Throughout this post there are responses by realtors saying that these fees are justified and the time required is greatly underestimated. Please back those statements up with detailed explanations. Based on my purchase of prior homes, the broker ishandling most of the vital paperwork, not the agent.

I had a tedious transaction that when the commission was broken down to hours spent keeping it together, it wasn't more than about $3.00 an hour before taxes. If I had a standard hourly rate for services rendered, noone could afford me!
Don't forget that the agent that gets the job done only recieves a fraction of that 3%. Out of that we still pay for expenses, advertisement, marketing, taxes, and other bills.
If you've ever had an agent to help you buy or sell property and you thought the transaction was easy, you probably had a really really good agent who kept things together every step of the way.

The 3% commission fee has not changed for years, and yet efficiencies have been made in this industry. Clients are now finding their own homes via redfin, trulia, zillow. Doing their own research and comparisons on neighborhoods because of these new tools available to them. Clients even go to open houses on their own without a Realtor. This shift should lead to lower costs paid to realtors who often time are just needed to handle the paperwork.

Seems like a tiered system should be put in place. If I do all the research and just need someone to put in an offer and push the paperwork through, why should the price be inflated an additional 3%. Sure, if someone needs a realtor to hold their hand and show them property after property, it might justify a 3% increase in the price of the home, but if I do all the work of finding a property and research, why am I still paying the inflated 3% price of the home?

Many say that realtors will protect you in making bad decisions, steer you in the right direction, but the incentives and profit models are based on closing the deal, not necessarily helping you find the best home for you or your family. I'm sure there's responsible, honest realtors out there, but if anything the real estate bubble has shown us, it's that realtors are rewarded for inflating prices and closing as many deals as they can, regardless if the home is affordable or justified at listed prices.

Some do, but they are few and far between. They are typically flat-fee agents and there is no guarantee of results. As a rule, people prefer to pay when a sale occurs, although some will take a chance on the flat fee arranagement; it is still not exactly "by the hour."